MiddleGround embarks on the transition from debut to second fund

MiddleGround Capital is making the vital shift in an emerging managers’ life cycle from first to second fund, targeting $550 million with a $650 million cap for its sophomore effort, a person with knowledge of the firm told Buyouts.

MiddleGround is testing a gradually recovering fundraising market that slowed last year in the pandemic shutdown. Limited partners mainly focused on their established relationships through the lockdown, but fundraising appears to be opening up more this year.

Existing LPs with MiddleGround are coming back in the second fund, which is experiencing around 100 percent re-up rate, the person said. A first close is set for later this month that could come in at $450 million to $550 million, the person said.

The main fund hits the market as MiddleGround also has been raising its first-ever strategy-specific fund, targeting $200 million for an overage fund for “mobility” investments. The firm also is raising a sidecar co-investment fund for certain limited partners without active co-investment programs, the person said.

Overall, the firm is targeting around $1 billion across the three pools, the person said. Credit Suisse is working as placement agent on the fundraising, according to the source.

MiddleGround, based in Lexington, Kentucky, with offices in New York, emerged with a $460 million debut fund, helped along by an anchor commitment from seeding platform Archean Capital Partners, a joint venture of Veritable and Moelis Asset Management. It’s steadily deployed capital from the pool, including through the pandemic market lockdown.

The first fund is around 80 percent committed so far, according to a person with knowledge of the firm. However, MiddleGround sold down some exposure to mobility-related investments to the overage pool, freeing up more space in the main fund.

Likely, the first fund will make two more platforms before it closes for good, the person said. MiddleGround invests in business-to-business companies in industrial and specialty distribution sectors in the lower mid-market. MiddleGround has seven portfolio companies, including its most recent investment in November in Shiloh Industries, which makes products focused on light-weight vehicles.

Fund II would likely not activate until the second half, once Fund I finishes investing, the person said.

MiddleGround is among a handful of early managers looking for capital in an uncertain market. Others include Patient Square Capital, formed by ex-KKR healthcare chief Jim Momtazee, which could raise $3 billion as one of the largest debut funds ever.

Also, Percheron Capital, formed by ex-Golden Gate executives Chris Lawler and Chris Collins, is expected to target around $500 million for its debut pool, Buyouts previously reported.